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Regulation and Compliance > Federal Regulation > SEC

Jury Finds Priest Serving as Hedge Fund Advisor Made False Statements

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What You Need to Know

  • A Boston jury delivered a mixed verdict on Friday in the case of a priest and hedge fund advisor whom the SEC had accused of fraud.
  • Despite making false statements, the priest did not intentionally or recklessly engage in a scheme to defraud clients, the jury ruled.
  • The priest intends to appeal the portion of the verdict in which the jury ruled against him, he said.

In a mixed verdict, a Boston jury on Friday found that a hedge fund advisor who is also a Greek Orthodox priest intentionally or recklessly made untrue statements of a material fact or omitted to state a material fact to his clients. But the jury found that he did not intentionally or recklessly engage in a scheme to defraud clients, according to a court document filed on Friday.

The Securities and Exchange Commission had alleged in a complaint filed Sept. 12, 2018, in U.S. District Court for the District of Massachusetts that Gregory Lemelson and Massachusetts-based Lemelson Capital Management LLC illegally profited from a scheme to drive down the price of stock in San Diego-based Ligand Pharmaceuticals Inc., reaping more than $1.3 million.

According to the complaint, Lemelson, who is chief investment officer and portfolio manager of LCM, and LCM put out false information about Ligand after Lemelson took a short position in the company in May 2014 on behalf of The Amvona Fund, a hedge fund he advised and partly owned.

Lemelson was charged with two counts: (1) fraud under Section 10(b)/Rule 10b-5 of the Securities Exchange Act and (2) fraud under Section 206(4) of the Investment Advisers Act.

There are multiple ways one can be liable for fraud under the securities act. Although the jury found that Lemelson had made fraudulent misrepresentations, it did not find that he engaged in a fraudulent scheme. The jury also did not find that Lemelson violated the Investment Advisers Act.

The SEC’s evidence at trial showed that after establishing a short position in Ligand via his hedge fund, Lemelson made a series of false statements to shake investor confidence in Ligand and lower its stock price, increasing the value of his fund’s position, the SEC said Monday.

Those allegedly false statements included assertions that Ligand’s investor relations firm had agreed that Ligand’s most profitable drug was on the brink of obsolescence and that Ligand had entered into a sham transaction with an unaudited shell company to pad its balance sheet, according to the SEC.

The SEC’s evidence also showed that Lemelson had boasted about bringing down Ligand’s stock price through his “multi-month battle” against the firm, according to the SEC.

The court will determine remedies at a later date, the SEC said Monday. It declined to comment on the mixed verdict.

“We intend to appeal the remaining adverse parts of the verdict,” Rev. Lemelson said in a statement posted on the Amvona website Friday.

(Photo: Diego M. Radzinschi/ALM)


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